Azul S A Sp/Adr

Hello everyone and welcome to Azure's first quarter earning call. My name is Zach and I will be your operator for today. This event is being recorded and all participants will be in a listen-only mode until we conduct the Q&A session following the company's presentation. If you have a question, click on the Q&A icon at the bottom of your screen and write your name and company. When your name is announced, please turn your microphone on and proceed. For those who are listening to the conference on the phone, press star nine to join the queue and star six to accept the audio when requested. I would like to turn the presentation over to Thais Heberle, Head of Investor Relations. Please proceed, Thais.

Thank you, Zach, and welcome all to ASUS First Quarter Earnings Call. The results that we announced this morning, the audio of this call, and the slides that we referenced are available on our IR website. Presented today will be John Rogerson, CEO. Alex Moffittoni, our CFO, and Avi Sham, Chief Revenue Officer and President of Azul, are also here for the Q&A session. Before I turn the call over to John, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives, and expected performance, constitute forward-looking statements. These statements are based on a range of assumptions that a company believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in our CVM and SEC files. Also, during the course of the call, we will discuss non-IFRS performance measures, which should not be considered in isolation. With that, I will turn the call over to John.

Thank you, Thais. Welcome, everyone, and thank you for joining us today. First, let me begin by thanking our incredible crew members for their passion and dedication. The first quarter for Azul brought a return to operational excellence that our customers expect. As we shared many times before, in 2024, we did not run the best operation due to significant OEM issues we experienced. This was tough on our customers, our crew members, and had an impact on our results. I'm happy to report now that towards the end of the first quarter, our operation is back. I will give you more details later on this call But for now, I just want to thank our crew members for their perseverance and hard work. Turning to slide three, I want to just highlight the sustainable competitive advantages of the Azul business model. The combination of a differentiated network with unique fleet flexibility, our high growth business units, our lowest unit cost in the region, together with passionate crew members and supportive stakeholders is what allowed us to deliver the results we present to you today. On slide four, I want to start with our network. one which we are constantly optimizing with a singular focus on profitability and the best use of our assets, our aircraft. This network that is different by design with no nonstop competition in 82% of our routes, representing 77% of our revenue, a remarkable competitive advantage. Still, we're constantly making changes to make it even better. This quarter was particularly active. In the month of March, we suspended service to 14 cities. This was in response to the high fuel environment combined with the revenue performance in these markets. At the same time, we increased service in many other markets, up gauging to fuel efficient Embraer E2 aircraft, especially at our Belo Horizonte hub. These are just some examples of how we continuously strive to extract the best possible results from our network. On slide five, you can see that we're excited to report another strong first quarter. Revenue of 5.4 billion reais with a RASC of 42 cents. Flat year over year with a 16% increase in capacity. Our EBITDA for the quarter was 1.4 billion reais with a margin of 26%. An EBIT of 571 million reais. In the first quarter, we were impacted significantly higher than expected because the devaluation of local currency and irregular operations, which I will address later on this call. Turning to slide six, I want to share the details on our revenue performance. Overall, we maintain unit revenue flat with a 16% growth in capacity, a strong result overall. Even more impressive given the fact that the major part of our year-over-year increase in capacity was in our international network due to the low base from last year. Normally, this would have an effect on lower unit revenues due to the longer stage lengths, but thanks to the demand environment and the contribution from our ancillary and business units, we were able to overcome that effect. We are also actively using technologies in the area of revenue management. Tools make recommendations on pricing, yield management, and ancillary revenue on a quasi real-time basis, further allowing us to maximize our unit revenue. Turning to our business units, I want to highlight their revenue contribution and impressive performance this quarter. Our business units have done a great job of growing beyond the metal, finding new and unique ways to increase our revenue. outside of just ticket revenue. On slide seven, you can see the contribution of our high margin business units on RASC, which grew from 19% in first quarter 24 to a very strong 23% in first quarter 25. All units combined resulted in positive impact of more than 480 million reais in the quarter, accounting for 35% of our total EBITDA in the quarter. On slide eight, you can see the continued high growth from each of our beyond the middle business units. Our loyalty program now boasts 19 million members and a record high monthly active users. Sloan revenue was up 65% year over year and net unit revenue contribution was double compared to first quarter of 24. The combination of our domestic and international network, airline, hotel, retail, and banking partners has resulted in record engagement and results in our loyalty program. Our vacations business continues to grow with gross billings up 56% year-over-year. Upcoming network additions such as Porto, Mendoza, Berlacci, and Madrid will continue to propel growth in this leisure-focused business for years to come. Finally, Azul Cargo, our logistics business, had a very strong quarter, total revenue up 20% year-over-year, international revenue up 62%, and most importantly, our EBITDA doubled compared to first quarter 2024. During the quarter, we entered into service our two A321 freighters, and they are becoming a key driver of revenue and margin expansion in the business. As we have always said, our business units are a key part of our strategy and a driver of unit revenue and earnings expansion going forward. On slide nine, I want to highlight the improvements we have made in our ancillary revenue. Overall ancillary revenue was up a very strong 22% year over year. and ancillary revenue per pax was up 14%. These increases were driven by the growth in our premium products, such as business class and extra legroom seats, together with the record activity in our loyalty program. We continue to see opportunities in improving merchandising, CRM, and pricing, so we expect continued growth in the ancillary revenue per passenger metric. On slide 10, I want to highlight another key competitive advantage, our co-branded credit card with Itaewoo. We believe we have the strongest co-branded program in the country, with the highest percentage of premium card holders. We already had the Visa Infinity card that was incredibly popular with spending of about one half of 1% of Brazil's GDP. And this April, we're proud to launch the MasterCard Black Skyline premium credit card. This product further positions Azul as a premium airline in Brazil and expanding even further our base of high yield demand and revenue. On slide 11, I want to turn to the cost side of the business. We continue to be the lowest cost provider in Brazil. This includes the effects I mentioned on the cost we're facing from operational impacts and OEM challenges. As I mentioned in the opening, and will show on the next few slides, we're significantly improving our operation, and those inefficiencies are coming out of our business. We also continue to be laser focused on efficiency, whether that is in our aircraft utilization or our headcount productivity. Round time at airports. We are focused, focusing Azul into a lean operating airline. We have made significant progress so far, but there's still more we can do. Turning to slide 12, you will see two great examples of operational improvements that led to efficiency. Despite all OEM challenges faced in the latter part of 2024 and early 2025, we were able to increase our aircraft utilization by almost 5%. This is a result of a combination of factors, including our network optimization strategy I mentioned before, more new generation fuel-efficient aircraft flying in our network, and a significant improvement in our operational reliability. In addition to a higher utilization leading to more efficient ASK generation, the airline is also more efficient, delivering additional ASKs with less headcount. Our efforts to optimize processes, develop new automation technologies alongside our passionate crew members resulted in a productivity being up 18.9% year over year. On slide 13, you will see the impact on ASK generation from all of the challenges we faced in 2024. I would like to highlight two major factors. We began the year with the unfortunate floods in southern Brazil, a devastating natural phenomenon that turned 10% of our network offline overnight in one of the most profitable bases. Shortly after, the constant OEM challenges we faced throughout the year worsened with several unscheduled engine removals and longer recovery time. impacting our ASKs for the second half of 2024. These impacts were a loss of close-in ASKs, which had a devastating impact to our customers and operation overall. However, since early 2025, working together with the OEMs and our partners, we're seeing improvements in all operational areas. We've been able to close the gap and get back on track to our planned capacity generation. On slide 14, I would like to highlight two examples of impacts disruptions trigger to our operations and customers that we've been able to significantly improve over the past few months. Our irregular operations as a percentage of departures has decreased by over 65% in the first quarter and continues to be a downward trend, such as directly to another great indicator, which is the average night's customer spend in hotels due to the impact to their booked flights. During the past quarter, we reduced our average customer hotel nights by 75%. Even though we made significant improvements during the first quarter, we were still impacted by the additional cost generated by the irregular operations and the customer litigation caused by it. Looking forward, we see a positive trend and expect these costs to improve during 2025. Going forward on slide 15, you can see the improvements in the macro scenario to support our EBITDA generation in 2025 and beyond. The Rial has appreciated 9.3% in 2025, which reduces our dollar-denominated debt and expenses and improves our cash flow generation and reduces the cash outflow to pay down aircraft lease, CapEx, and interest. We're also seeing improvement in the heating oil curve, which is down more than 17% compared to the January peak. Using the current spot price, fuel expenses would have been $200 million lower in the first quarter, showing the potential upside to improve EBITDA and cash flow generation in the coming quarters. Turning to our final slide, I must highlight how the first quarter really shows how much Azul has overcome a challenging year and is already generating positive results. Our unique business model has once again proved the value generation this airline has at its core. Our enhanced approach to our network strategy are beyond the Beyond the metal, business units and improved operation have resulted in improved, more efficient ASK generation at the lowest cask in the country while sustaining a strong unit revenue. I'm certain that our competitive advantages will continue to prove how Azul is the strongest airline in the region and yield positive results on a consistent basis. I can't thank enough our entire crew member base for bringing back to our usual levels of operational excellence. I'm proud of the unique business model we have built together.

With that, Avi, Alex, and I are available to take your questions.

Ladies and gentlemen, thank you.

We will now begin our Q&A session, remembering that if you have a question, click on the Q&A icon at the bottom of the screen and write your name and company. When your name is announced, please activate your microphone and proceed. For those who are listening to the conference on the phone, press star 9 to join the queue and star 6 to accept the audio when requested. We will now go to the first question. That will come from Savi Sif, Sales Site Analyst, Raymond James. Savi, we're going to open your microphone so you may ask your question. Please proceed.

Hey. Good morning, everyone. If I might just, you know, there's a lot improvement that you called out here on the cost side, just operations, FX, fuel. Could you talk about how you're feeling about EBITDA for the year and how it should progress from here? Because it seems like maybe seasonality might be a little bit different this year, just given the movements in macro and operations.

Sure. Hi, Fabi. Yeah, so Q1, I think we, you know, was worse than we expected, but it's early enough. And also, we saw significant improvement going forward, right? So when you look at the forward curve for oil, when you see where the real is, and there has been already some recapture in the first quarter, right? So namely, you know, fuel alone, the fuel expense line alone, like we said, was over 200 million reais of a bad guy. When you add effects, that's another 100 million. and then the irregular operations. But everything is improving, right? All of those items, fuel effects and irregular operations are all improving. And we are still getting benefits on the demand side. You know, we're seeing strong risk even with high capacity growth. So when you combine all that, we're going to work, you know, and we think we have enough time to still deliver as high an EBITDA generation as we can, even with the impact in Q1.

Understood. Appreciate that. And I wonder, and maybe a question for Avi, could you elaborate a little bit what you're seeing on the demand side just between corporate and leisure? It doesn't seem like, you know, there's been much of a hit with some of the macro headlines that we've had, but curious what you're seeing.

Yeah. Hey, Savi. Yeah, you're right. You know, I mean, nothing compared to what you're anecdotally hearing in the U.S., right? Ex-Brazil point of sale demand. has been strong. Even with the noise in the U.S., we didn't see any oscillations in our U.S. business. Our international network is a high-end leisure network. I think we are more insulated in that sense. On the corporate side in Brazil, it's been very, very steady. We haven't seen, obviously, we've grown and the revenue has grown with us. And so we are maintaining that pace. We had, you can check the corporate travel agency shares. You know, we had a 34% revenue share the last report. This is public data from corporate travel agencies. So the Brazil sort of local environment has been solid, has been very steady. Brazil point of sale internationally has been good as well. And we're actually seeing a growth year over year. in ex-Brazil point of sale, which is revenue that's coming in euros and coming in dollars, both for our international network as well as our domestic network. So, you know, I think you'll see unit revenues expansion in 2Q, which is good. So I think overall a pretty steady demand environment.

Very helpful. Thank you.

Thanks, Avi.

Thank you. The next question comes from André Ferreira, Sales Site Analyst, Bradesco. André, we will open your audio so that you can ask your question. Please proceed.

Hi, good morning. Thank you for the space here. So two questions from my side. The first, if you could comment on your thinking regarding the $200 million equity raise in terms of timeline and whether there are talks for an anchor investors. And my second question is, Alex, you mentioned that fuel was $200 million a tractor, affects another $200 million. And from the other cost line, which had the $330 million higher costs year over year, in the release, you mentioned that it's mainly from the performance issues. How much of the $330 million was the performance issues alone? Is there a chance that Azul will be compensated for it by the OEMs? That's it. Thank you.

Yeah, thanks. So on the equity raise, I think just to remind everyone of the timeline, right, we've reached an agreement with our bondholders, lessors, OEMs, and part of that agreement called for an equitization of debt. to happen in April, right? We actually had three equity offers over the last few months, one to equitize the lessors, one for the controlling shareholders to bring in new money into the company, and more recently, the equitization of 35% of our 29 and 30 notes. So we've been implementing the plan as agreed, and that's why we had an equity offer in April. Now, you know, the markets didn't, you know, favor the timing. We didn't get incremental equity raise, but we were successful in equitizing a significant amount of debt and, you know, reducing our leverage, right? You know, we obviously, it would make sense for us to bring in additional equity capital, but we'll find the right time to do that, right? I think there's a lot of noise in the market, both in macro terms and understanding our overall restructuring. And so I think things will calm down over time and we'll, you know, continue to evaluate that opportunity. On the cost side, you know, yes, fuel about $208, about $100. Other was impacted, like we said, about, you know, irregular operations. And just think about what that entails, right? When you're unable to fly and when you have close in impacts, you know, from OEMs like we did, you know, that creates a lot of disruption in terms of us having to reaccommodate our customers, you know, in terms of meals, hotels. transportation, sometimes, you know, transportation on other airlines that close in fares. So that was a big part of the increase in the other line. Also, the other line, there has a lot of components that are dollar-denominated, and the average dollar between Q1 of 24 and Q1 of 25 was almost 20% up, right? Now, obviously, as we have demonstrated, the operations have improved significantly, so we should see a reduction in customer reaccommodations and legal contingencies going forward. But that absolute number is not that far from what's consistent with our guidance as well, right? So even though there was a big increase year over year, the improvement that we see in irregular operations would be enough for us to continue on the path that we had outlined.

Yeah, and as for the OEM claims, we were in constant discussions with them. I mean, we had eight wide-body engine removals in the span of six weeks in the fourth quarter, right? And, you know, that had a significant impact to our customers. Avi was unable to sell close-in revenue because we were just reaccommodating customers. And when you cancel people's flights on international, you're putting them up in hotels and moving people around. So, yeah, there is claims out there to the OEMs for sure, and we're seeking compensation, similar to what you've seen with other airlines around the world, and we'll continue to do that. But we wanted to show, as Alex mentioned in the chart shows, there's been significant improvement in that just in the last 60 days alone. So we have more spare aircraft available to us, more spare engines, and more engines leaving the shop. And so we expect a significant improvement going forward

in this line item. Very clear. Thank you. Thank you.

The next question now will come from Michael Lindberg . Michael, we will open your audio so you may ask your question.

Please proceed.

Hi, this is Shannon Darian for Mike. Thank you for taking my question. You know, maybe for the first one, just to follow up on Savi's question, are you officially reiterating the 7.4 billion Riyadh in EBITDA this year? I understand that's going to be back half loaded, but just want to know if you're like walking away from the guidance.

Yeah, we're not changing guidance at this time.

Okay, I understand. And for the second one, you know, just to be going forward, what is the share count that we should be using for the next quarter? assuming a net profit. I know in your footnotes, in the release, it says that the share count doesn't include dilution, and you did get a bunch of transactions done post-quarter end. So just an update on share count would be helpful.

Yeah, the current number of shares outstanding after the equitizations that we have done is 980 million preferred equivalent shares.

Thank you.

If you have a question, click on the Q&A icon at the bottom of your screen and write your name and company. When your name is announced, please activate your microphone and proceed. For those who are calling from their cell phone, press star 9 to join the queue and star 6 to accept the audio when requested. The next question now will come from Rogério Araújo, Sales Site Analyst, Bank of America. Rogério, we're going to open your audio so that you may ask your question. Please proceed.

Hey, John, Alex, Abby, thanks a lot for the opportunity. I have a couple here. The first one on liquidity, second key is usually a tougher quarter in terms of seasonality and cash flow. So if you could update us on any potential credit line from the government that has been spoken in the past, if there is an update there. Also, we saw the TAPS bond going to a actually short-term asset in the balance sheet. It expires in March 26th, if I'm not mistaken. So what to expect with the TAP's bond? Will it become a cash position, same amount as in the balance sheet in March? Is there any way that it could be repurchased by TAP before that? Would that require a haircut? So how can we think about that line? And my second question, actually, it's a follow-up from the equity offering. I understand there is an anti-dilution clause for creditors that are converting that into equity. And at this price, an offer could trigger further dilution to investors. So how can we think about this potential equity offering in terms of this clause? What to expect? Could that be revised? Is there other alternatives? because I understand that this has to be concluded for the third phase and the restructuring to be concluded as well. Thank you so much.

All right, Rogério, we're going to take it in pieces. You know, first of all, second quarter, you know, as we build up the summer and sell the summer peak, usually there's improvement in cash flow in the second quarter compared to the first quarter. But your question about the government line, I think we've seen movement for sure. They've passed through initial approvals for the FGE line, which, you know, could be, you know, a couple hundred million dollars worth of liquidity to the airline, to each airline. And so we're very positive on that. We've been in constant conversations with the government around that line. So, you know, all things indicate that that'll get approved fully in the next week or two, which that's exciting. As for the equity offering, I'll let Alex kind of give more color, but obviously that anti-dilutive clause was not helpful and so as we went through the process you know we needed to equitize the debt that they have and and what i would say was we're in constant conversations with the bondholders and so you know they asked for something initially that was to protect them and it actually didn't protect them and it didn't protect and sustain the stock and so yeah we're in we're in constant conversations with them on a better approach Because we do need to deliver the business even further. And, you know, that clause is not helpful for sure.

Yeah, that's right. On the liquidity, you know, sometimes I think people, you know, mix up, you know, the strength of the quarter in terms of revenue. versus the strength in terms of cash, right? Q1 is a very good quarter in terms of demand and revenue, but it's flown revenue. But most of that flown revenue was booked in previous quarters. So in terms of cash, Q1 is actually probably our worst quarter, seasonally speaking. Q2 is our worst quarter in terms of demand, traffic, you know, usually, you know, risk. But it is a good quarter in terms of cash because you're starting to build both revenue into the July season and the second half of the year, which is obviously the stronger in terms of demand. It's not exactly like that, but usually the strongest quarters in terms of revenue are the weakest quarters in terms of cash flow and vice versa, right? The weakest quarter in terms of revenue is the strongest quarter in terms of cash. It's not exactly like that, but Q2 is not a bad quarter in terms of cash generation. In terms of the TAB bonds, I mean, they are within a year from maturity, so that's why they are in short term. And we expect to be paid. That's a debt that has never been in question. You know, there are discussions, obviously, on the collateral and interest calculation, but, you know, no discussion on the existence of the debt. So we'll be discussing with... with TAF and the Portuguese government, obviously, you know, directly with them, and any news we will share with the market as soon as possible.

Fair enough. That's very helpful. Thank you. Thanks, Rogério.

Thank you.

The next question will now come from Guilherme Manges, SalesSiteLNS, JP Morgan. Guilherme, we will open your audio, so you may ask your question. Go ahead.

Hey, John, Alex, Abby, thanks for taking the time. First one, it's on the M&A, the potential M&A with Go. The company now is expected to exit Chapter 11 probably in June, and you are involving your own liability management. So if there's anything that you can share on the exchange ratio or at least timing for it to be announced. And the second one is just a follow-up on the guidance. Are you guys formally withdrawing the guidance or just not updating it? Thank you.

Yeah, hi. On the M&A, you know, as we have said before, we continue to be in conversations with ABRA. They always made it clear that gold was going to exit first, so that was always part of the plan. But the discussions continue. They continue on many parallel fronts, including valuation, including antitrust, documentation, all those kinds of things. So the discussions continue.

And as regards, there's no change, so. Perfect. Thank you. Okay. Thank you.

And the next question comes from Savi , Raymond James. So Savi, we will open your audio, so you may proceed.

Hey, thanks for the follow-up. Just given the kind of outlook hasn't changed, I'm guessing your views on capacity haven't changed much, but could you talk a little bit again about how you're thinking about that for the rest of the year and between domestic and international? Thanks.

Yeah, hey, Savi. Yeah, it hasn't changed a lot. You know, as John said, we are making changes to the network, but overall I see about, in the domestic industry, I see about 8% growth. On a year-over-year basis, it will peak in the second quarter. So you will see higher growth from everybody in the second quarter. And then you will see lower year-over-year growth from everybody in the back half of the year. So Azulgo, LATAM are kind of all following that same trend. And for us, yeah, we're on plan. I would say domestic around 8%. International is going to be higher only because some of the OEM issues that we faced last year led us to have an artificially low base. So you will see high international now in 2Q, and then you will see higher international again in 4Q because of the OEM. But I would say overall, you know, around 10%. domestic will be around 8%.

That's helpful. Thank you. Okay, thanks.

The next question comes from Daniel McKenzie, Seaport. Daniel, we will open your audio, so please proceed with your question.

Oh, hey, thanks. Good morning, guys. Really, the questions that I have really are around hardening the business model to handle the macro swings that can cause revenue to move pretty hard, FX and fuel. And so I'm just curious, in the context of hardening the business model going forward, you guys have done a lot to build a really impressive airline. But the traditional way has been just low capacity, cut capacity. I'm just curious how you're prioritizing the levers looking ahead. And then just related to that, you know, what leverage metrics are you targeting end of this year and end of next? And, you know, what's the pathway to the optimal balance sheet that you'd like to see?

Hey, Dan. Yeah, I mean, as an airline in Brazil, you know, we always say that we are an imported service in a way, right? And so we are. uh exposed to the cost of importing the inputs that allow us to produce a seat in brazil right we have aircraft that are denominated in dollars the financing for the aircraft is mainly in in dollars even the working capital for an airline as a capital intensive business usually for you to be able to borrow The significant amount of capital that the business requires for a longer term, that capital is usually provided by U.S. or foreign investors that want a return in dollars. Fuel in Brazil, unfortunately, is dollar denominated. We don't think it should, but it is. And then a lot of other items, right? Like, you know, GDS fees and IT and spare parts and maintenance and insurance. And so, yes, you know, that exposure is intrinsic to the business. I think the lever we pull, I wouldn't say as much capacity, but I think the main one is fares, right? We see that fares, you know, are essentially packed to the dollar with a bit of a lag. You know, they're not indexed to dollar, but we've demonstrated that over time, even though the real has, you know, significantly devalued since we started Azul, you know, the real was at 160 to one. when we started Azul, and I don't think anybody had in their forecast that it would reach 630 to 1. But over time, we have been able to more than offset that currency devaluation with fares through the strength of our network and our fleet. and the customer experience that we deliver. We've also made the company a lot more efficient, right? And we're going to do that regardless of the dollar. We'll be constantly pursuing more efficiency, more productivity, higher aircraft utilization. You just need to be constantly looking for opportunities to reduce costs. And even though we've made a lot of progress, if you look at everything that's under our control, right, which is employee productivity, aircraft utilization, ancillary revenues, the revenue that come from our business units. Everything that's in our control is doing really well. But unfortunately, the things that are outside of our control, such as fuel and effects, were big headwinds in Q1. But the positive news is that they should be much better for the remainder of the of the year, right? But also one thing that we had in the past, Dan, you may remember, we kind of had to use it up during the the Brazilian recession in 16 and then, you know, through the pandemic, is that we are able to finance our fleet in REICE, right? We are the only operators of Embraers in Brazil. And in the past, we had about a third of our fleet that was debt financed. And a lot of those aircraft were financed in REICE. That is a great hedge fund. Unfortunately, it's not one hedge that we can just reset and rebuild overnight, but we will absolutely do that going forward. The beauty of that is that the aircraft, when it's financed and revised, it continues to be valued in dollars. And if you need to reduce capacity, you can sell that asset. pay down the debt, and the debt will be constant, right? It will not have increased because of the devaluation, while the value of your asset will, right? We had that cushion that we built over time. We had to use it up over a couple of crises that we faced, and we're going to rebuild it going forward. And that will be another competitive advantage that Azul has, which no other competitor can match.

Yeah, Dan, a couple of things. Just the FX alone is going to improve and leverage, but a couple of things that Alex said I just want to reiterate. We're down year over year in headcount. Absolute FTEs, we're down, yet we're up 15% in ASKs. So we are building a more efficient airline. Real denominated debt, we have the ability to finance our E2s. The government line is also something. We need to have less U.S. dollar denominated debt on our balance sheet. We need to delever. And that's why we're talking to our partners about doing.

Yeah. Thanks for that comprehensive answer. A follow up to that is, Alex, can you speak to CapEx this year and next? You know, just big round numbers. You know, how should we think about that? And then, you know, given everything that you just shared, how can we tie that, you know, what kind of leverage metrics should we think about for Azul as we look ahead one to three years?

So, CapEx, I think you remember back in, I think, November, we put out a walkthrough of our pre-cash flow to firm. You know, that number is dollar denominated. The dollar has fluctuated somewhat. So, depending on what your dollar assumption is for the year, you need to adjust that CapEx number somewhat. Also, you know, the OEM issues that we had may require a little bit, you know, more engines to be sent to overhauls. But, you know, we don't have guidance on CapEx, and we don't have guidance on leverage either, but you can use kind of those old numbers as a guideline. for you to come up with your estimates. Now, we want to reduce leverage. I think that is something that all stakeholders of Azul would like to see. We've done a lot of progress on reducing that leverage. And unfortunately, some of that leverage came back through the devaluation, but it's coming back, right? So we will continue working on everything that's within our powers to generate more cash, pay down debt. And that's also something that is always permeating our conversations with all of our stakeholders.

Hey, Dan, I just want to reiterate one other thing, which is a competitive advantage that Azul has is that all of our next generation aircraft are under PBH contracts and engine agreements overall. So while CapEx will be up in the short term because of the reliability of the new engines, you know, you're going to get that back over time. It's just a pull forward, if you will, because all of our engines are under a power by the hour contract. And that's a competitive advantage that we have that, quite frankly, the OEMs aren't offering anymore, right? And so as we look forward, you know, we have that advantage going into the next few years.

Yeah, and it is an asset that Azul owns, right? Because as John said, that contract is not being offered anymore, and it is providing significant protection because the cost of engine overhauls with all these supply chain issues and MRO capacity issues is obviously going up significantly.

Thanks for the time, you guys. Thanks, Dan. Thank you. I will now turn it over to John for closing remarks.

I'd just like to thank everybody for your time today and thank our crew members for all their work in the quarter. And we look forward to talking to you. Feel free to reach out to our IRR team if you have any additional questions. Thanks, everybody.

Thank you. This concludes the ASUS Audio Conference call for today. Thank you very much for your participation and have a great day.